Login
iscover
An increase of 25 bps leaves room to assess string of recent rises, says the bank.
Newsletter
RBA rate rise prioritises ‘wait and see’ approach
05 October 2022
•
10 minute read
The RBA has raised the cash rate for the sixth month in a row, this time by 25 bps, to take it to 2.6 per cent.
You’re out of free articles for this month
To continue reading the rest of this article, please log in.
Create free account to get unlimited news articles and more!
The rise of 25 bps ran against the consensus view of the major banks, which backed a fifth consecutive 50-bp increase.
Sole dissenter, the Commonwealth Bank, said the RBA was right to take a wait-and-see approach.
“We believe the domestic backdrop does not warrant another super-sized rate hike, particularly given the RBA has recently acknowledged that ‘the full effects of higher interest rates (are) yet to be felt in mortgage payments”, said CBA head of Australian economics Gareth Aird.
RBA governor Philip Lowe said the board was committed to returning inflation to its 2–3 per cent target but also aware of current economic conditions.
“Today’s increase in interest rates will help achieve this goal and further increases are likely to be required over the period ahead,” said Mr Lowe.
“The cash rate has been increased substantially in a short period of time.
“Reflecting this, the board decided to increase the cash rate by 25 basis points this month as it assesses the outlook for inflation and economic growth in Australia.”
CPA Australia business policy adviser Gavan Ord said that despite the smaller increase, any rate rise puts additional strain on firms.
“Today’s 0.25 per cent interest rate rise will put more pressure on businesses. When interest rates increase the rate on all variable loans goes up, including business loans,” said Mr Ord.
“Businesses need to factor higher interest rates into their planning. We are facing economic pressures the likes of which have not been seen since the 1980s.
“It’s important that businesses seek professional advice if they’re unsure about how to handle this unusual conflation of events.”
Mr Ord said the government needed to offer greater support for small businesses to help them with the combined pressures of increasing rates and inflation.
“The Reserve Bank and the federal government do not want inflation to keep running this hot,” he said.
“Given this, our recommendation is for the upcoming federal budget to focus on modest initiatives that have the biggest bang for their buck.
“We support targeted, short-term support for smaller businesses and charities facing challenges that offers value for money.”
CreditorWatch chief economist Anneke Thompson said that the shifting labour market could result in the RBA continuing to slow rate increases.
“There are now 10,000 fewer jobs available in Australia (than) three months ago,” said Ms Thompson. “This is a forward indicator for unemployment, and coupled with increasing labour supply through migration, we may have already witnessed our trough in unemployment.
“Given strong employment has been such a key driver of consumers’ willingness to spend, the RBA will be watching this data closely.
“If the unemployment rate does continue to ease, the RBA may choose to make more ‘wait and see’ decisions as we move through the remainder of 2022 and into 2023.”
You need to be a member to post comments. Become a member for free today!
